Brazil set to cut rates to all-time low, hint at further cuts

SAO PAULO, Dec 6 (Reuters) - The Brazilian central bank is set to cut interest rates to an all-time low on Wednesday and hint at further cuts early next year as inflation stays surprisingly below the official target.

The bank’s monetary policy committee, known as Copom, is widely expected to reduce the benchmark Selic interest rate by 50 basis points to 7 percent at the end of a two-day meeting, according to a Reuters poll of economists.

The decision is expected to be announced at 6 p.m. local time (2000 GMT) on Wednesday.

Investors will watch the bank’s policy statement closely for clues on the possibility of further cuts in 2018. While most forecast a final reduction of 25 basis points in February, a sizable minority expect the bank will stand pat.

Calls for further monetary easing have strengthened in recent weeks as it has become increasingly likely that the annual inflation rate will end the year below the bottom of the government’s target range for the first time in two decades. Brazil’s central bank targets 12-month inflation of 4.5 percent plus or minus 1.5 percentage points.

Expectations for 2018 are also running below the midpoint of the target, suggesting there is room for additional cuts.

However, if President Michel Temer fails to pass a plan to streamline the social security system this year, that could derail hopes of reduced government spending that have fueled market optimism this year.

Central Bank Governor Ilan Goldfajn has said that failing to reform the nation’s pension system would risk spurring market volatility.

Economists at Haitong Investment Bank told clients in a note that they expected the central bank to keep the door open to more cuts, but ultimately hold rates in early 2018.

“We are getting closer to the end of this cycle, but there is no doubt benchmark rates are likely to remain stable for a considerable period of time,” the investment bank said. (Reporting by Bruno Federowski; Editing by Jonathan Oatis)